Enforcing post-termination restrictions and unsigned employment contracts

Tenon FM Ltd v Cawley

An employer wanting to vary an employment contract to incorporate more onerous post-termination restrictive covenants must ensure it has evidence of valid consideration for the change and should always obtain proof of agreement from the employee; ideally in the form of signature.

Background

Ms Cawley worked for Tenon, a large facilities management company. She started work in 2008 and worked her way up the organisation, ending up as Operations Director. She sat on the Senior Leadership Team and reported directly to the CEO. When she began working her contract contained various post-termination restrictions but when she was promoted, these restrictions were made more onerous. The updated contracts stated that they were only effective from the date of signature. She resigned in May 2018. When Tenon suspected that she was attempting to solicit an ex-colleague on behalf of her new company, itself a competitor, it sought an interim injunction to enforce her post-termination restrictions.

High Court decision

The High Court dismissed the application from Tenon.

Tenon fell at the first hurdle because it could not show that the restrictive covenants actually applied to Ms Cawley. There were two main reasons for this:

  1. Tenon could not locate a signed copy of Ms Cawley’s contract, either the original or the amended ones. Indeed, she had argued that she’d refused to sign them because she didn’t agree to the restrictions.
  2. In any event, Tenon could not show that there was adequate consideration (benefit) for her entering into the more onerous restrictions. The judge rejected Tenon’s argument that an employee continuing to work, and the employer continuing to employ, can amount to consideration for a consensual variation. This was particularly so where the change was an onerous one in the form of a new post-termination restriction.

The judge also criticised the aggressive way in which Tenon had conducted itself. When it initially wrote to Ms Cawley about its concerns, it had given her 12 hours to respond. In any event its ‘letter before claim’ made it clear that proceedings would be started regardless of any response. It then served the application for interim relief on her on the eve of her father’s funeral despite knowing that this was the case. The judge was also critical of the ‘clearly disproportionate’ costs incurred in seeking the injunction, estimated to be in the region of £200,000.

Link to judgment: https://www.bailii.org/ew/cases/EWHC/QB/2018/1972.html

Comment

Some take-outs for employers from this case:

  • If you’ve not got a signed contract evidencing an employee’s agreement to any restrictions, you’ll find it hard (if not impossible) in the absence of any other evidence of consent, to persuade a court to enforce them.
  • Make sure your HR processes record agreements to revised contractual terms (particularly for senior staff).
  • If you introduce revised contracts containing new restrictions, provide real/valuable consideration for an employee’s agreement to them (e.g. a pay rise, increased holiday entitlement, etc.).